Greystone, Inlet Real Estate Prepare for Market Distress with New JV

Greystone Commercial Mortgage Capital, an affiliate of CRE finance firm Greystone, and Inlet Real Estate Capital formed a joint venture “to provide short-term, floating rate capital solutions for commercial real estate owners,” a press release notes.

The venture, Greystone Inlet Real Estate Capital, is targeting CRE owners who either have currently distressed properties or ones that are facing potential trouble. From what many in CRE have told GlobeSt.com lately, that could include a lot of people and companies that are readying themselves for their own Black Friday.

The uptick in inflation, with the Federal Reserve kicking up its baseline interest rates that are sharply pushing up financing costs, could leave many whose business plans depended on low rates and high leverage with a difficult immediate future.

Up until early in 2022, it looked as though concerns about distress were overblown. Rescue funds from Congress and accommodating monetary policy from the Fed largely kept apartment and commercial tenants afloat and in place. But inflation started to kick up and what officials said was only transient stuck around for so long that dismissing it as a passing phase was no longer viable.

With higher rates has come wariness on the part of lenders, who not only charge more, but aren’t willing to extent significant leverage anymore.

As CRE owners face properties coming due for a refinance at a much higher rate than they previously had, possibly with a demand for lower LTV ratio, and so more capital, either the additional money might not be available, or the business model could be unviable at the higher rate. In either case, either the owner will have to sell or find some sort of bridge financing to tide things over in the hope that rates might come down within a couple of years.

There are two ways for investors or operators to capitalize on distressed inventory. If widely spread enough, values come down. One option is then to buy at a low price, opening room to perhaps provide some remodeling, but mostly ensuring the financial flexibility to make profitable operation feasible.

Talk about distressed, and that is a common model of approaching the subject: buying properties at a discount.

What Greystone Inlet Real Estate Capital is planning is the second model, which is not to buy properties but make bridging capital available across multiple property types, including multifamily, industrial, office, and mixed use.

“The joint venture will offer flexible structured capital solutions such as first mortgages, mezzanine loans, preferred equity, common equity investment, or a hybrid of multiple structures,” the release said. “Upon stabilization, the strategic joint venture between Greystone and Inlet will provide Sponsors with direct access to long-term, fixed rate financing through Greystone’s other lending platforms such as CMBS and Agency financing. The joint venture will target transactions ranging in size from $5 million to $50 million on assets located throughout the United States.”